Monday, January 31, 2011

Have you ever wondered why we tolerate mediocrity in public education here in America? It is easily understandable why the teachers’ unions resist all efforts of accountability in our schools. It is also understandable why an entire political party’s leadership, whose source of funding and power would also endorse whatever positions are taken by those unions (see my blog posting “Why do democrats hate black children”). Given the sorry state of public education, it is no wonder that the leaders of both the unions and the democratic party send their own children to private schools while forcing the masses into poor schools taught by uneducated sometimes functionally illiterate school teachers.
So what is the reason? It seems to me to be a simple matter whose linkages run through history. When Johannes Gutenberg invented the printing press in 1440, it was resisted fiercely by the Catholic Church. The church was incredibly powerful because it controlled information – having a virtual monopoly on reading and dispersion of the written word. There were hardly any bibles circulating outside the church and people would have to rely on the priest for the reading of the word and its interpretation. However, with the printing press everyone could have a copy of the bible, read it and interpret it themselves. It is no surprise that Luther’s posting of the Ninety-five Theses in 1517 was preceded by Gutenberg’s wonderful invention. Once information was the sole province of the church and its power was related to its control of information. Indeed, St. Thomas Aquinas was considered a genius because not only could he read, but he could read without moving his lips. The printing press changed all that and with widely disseminated news came the reduction in the power of the church. Luther’s publishing of his document and its wide distribution was the beginning of the Protestant Reformation which galvanized a resistance to the dogma and rituals of the church and despite brutal suppression emerged victorious with the Treaty of Westphalia in 1648. This was the democratization of religion.
A more modern example was in the computer revolution. When I was in graduate school, the most powerful person on college campuses was the head of the computing center. The computing center controlled the flow of information within the university and dictated whose work was done in what order. Now the changes in technology have made information readily available to all at a virtual cost of zero. The head of the computing center lost all his power and now that power resides in the masses. This is the democratization of information.
Where does this relate to mediocrity in education? The adopting of innovative methods in teaching, allowing people like me to teach in the public schools without getting a bogus certification having to go to some education class, allowing innovation in school organization, teacher evaluation and remuneration will raise the education levels of students. It should not be surprising that this bringing of education to the masses rather than just the children of the elites would be analogous to the Protestant Reformation or the computer revolution. Only it would be the education of those who traditionally vote democratic and would are ill served by their political party. It would give all people the tools to critically evaluate and to provide confirmation or disconfirmation of what they are taught to believe. This is the democratization of education.
A well-educated public is dangerous to all entrenched politicians but especially to those whose existence depends on the ignorance of its voters. Who said, “All governments must maintain power through consent, not coercion” and “governments have an obligation to respond to their citizens”? No, it was not one of the leaders of the Tea Party. It was Barack Obama speaking about Egypt. However, Obama has license to ignore his own statements when it comes to his healthcare legislation and the American public. Do you believe that a well-educated public and a critical press would have let this comment go by unchallenged? Not hardly.

Wednesday, January 26, 2011

Austan Goolsbee, the president’s chairman of the council of economic advisors in testimony before the congress actually said that the new “healthcare” law would create jobs. (I put “healthcare” in quotes because it is not about healthcare, it is about insurance. Actually it most likely will degrade healthcare.) This proves that a requirement to being in high places in the administration is a willingness to lie. It was amazing that when Goolsbee uttered this nonsense that the House members on the committee did not break out in derisive laughter. This was especially true when the two small business owners testified to the contrary. One said that the healthcare law would cost him $7,000 more per employee and if he kept his employees at the same level, would bankrupt him. The second owner said that it would cost him less not to provide insurance but to pay the fine. What was equally amazing is no one on the house panel accused either Goolsbee or the businessmen as lying. No one did. In two previous blogs I lamented about poor Christina Romer having to endorse positions that her own research had refuted and to knowingly lie with a smile. However, I cannot write about “poor” Austan Goolsbee because he has been shamelessly lying with a smile the past two years. One could excuse Romer because she is on the Cal-Berkeley faculty. However, Goolsbee is on the University of Chicago faculty! I know we have dumbed down our universities. There is a study out that finds that the longer students are in college, the worse they perform on basic skills tests (math, science, geography, politics, and English). Not surprisingly, the greatest diminution in skills were in the toney private schools like the University of Chicago. So the university that gave us Milton Friedman, Irving Fisher, George Stigler, Frank Knight, Ronald Coase, Robert Fogel, Gary Becker, Richard Posner, Bob Lucas, Gene Fama and Friedrich von Hayek now gives us Austan Goolsbee. Talk about dumbing down.

I do not listen to political speech. I have more important things to do (like watch the Ohio State (Go Bucks!) - Purdue (my brother's school) basketball game. I can always read the text later and read the pundit's comments. Last night was the state of the union address and the President asked for more billions in government spending. Only he did not call it "spending". Instead he used the word "investments". Like "revenue" before it, "investments" means something completely different when uttered in the context of government. Consider the definition of "revenue". Investopedia defines revenue as "the amount of money brought into a company by its business activities". Consider then its definition of government revenue as principally money received from taxation - meaning of course that no business activity was required to earn "revenue" in the case of government. Thus revenue is the result of meeting consumer demand for business and the result of expropriation by the government. Similarly, "investment" means something completely different when it is utter by a politician. When "investment" applies to business it is "the act of utilizing money or capital in an enterprise with the anticipation of profit." However, when a politician says "investment" it means spending. The President's speech asked for more "investments" in education, infrastructure, scientific research and renewable energy. Did any of the pundits as what has happened to all the previous "investments" made by other administrations? For instance, how much has been "invested" in education? I dare say trillions and what has been the return on that "investment" - merely among the lowest achieving students in the developed world. "Investments" in renewable energy mean subsidies that have cost us billions and have resulted still in losses for private companies and governments (see Massachusetts). An ironic by-product of renewable energy subsidies has been a rise in world food prices and the world's poor made worse off as their food prices and energy costs go up. It has also ravished Dafur and helped finance the Rwandan genocide. We have "invested" at least one trillion dollars in infrastructure over the past three administrations. So what happened to the money? How was it used? How could we have a crumbling infrastructure having spent $1 trillion? If indeed our infrastructure is crumbling then someone needs to go to jail. The market could not sustain the losses from such "investments" and would have abandoned each long ago. Another ironic point is the President's advocacy of research in scientific research when he has abandoned the manned space program. More times than not, the government funds losers and is incapable of picking winners - only the market can do that. So "investments" in scientific research will be research in the areas favored by politicians and not those generated by the market. However, Obama simply does not get it - nor does any of his inner circle of advisors. Up to now, Americans invented and then went abroad to manufacture due to the hostile regulatory climate in this country toward manufacturing and the high cost of labor. History tells us that R&D tends to flow to the source of manufacture. It is true that the Asians do not seem particularly inventive but that does not mean that innovative Americans won't migrate to Asian in order to be more hands on with the final product. Instead of throwing money down the rat hole of high speed rails, the President could spur economic growth with minimal government spending by making the country business friendly. Eliminating the corporate income tax, reining in the EPA, eliminating the capital gains tax and a reduction in the regulatory burdens of business will do more to stimulate economic growth than all the additional billions in "investments".

Monday, January 17, 2011

1. Why is Dania Patrick’s hair always blowing in her commercials? Pity the poor guy (a fan?) who has to follow her around carrying the fan. She must have been inspired by the Fabio commercials.
2. I was at a meeting when the question was asked “Who is the most influential black man in America among young black males”. Of course, someone answered “President Obama.” “No. It’s Little Wayne.” Who?
3. Central bankers cannot be trusted with the printing press.
4. Are all Democrats Keynesian? We hear that we are a consumer driven economy and we may well be. But Democrats think we are just a spending driven economy and always need to spend more.. Keynes did not distinguish between the effect of different spenders. In his formulation of GDP = government + investment + consumption, the components do not matter. If this were the case, we would never have a recession. So it is obvious that the source of the spending does matter. Government spending funded via taxation takes money from consumers. Government spending via borrowing distorts financial markets and takes money from investing. Government borrowing from the Fed also distorts financial markets and is inflationary.
5. There is a trailer for a new show on tv called “Mr Sunshine”. It features a woman saying in a very loud voice to a man that she could not find her panties that she had on at his house. It also has another woman saying in the midst of a crowd that she wants to make love to the same guy. My girlfriend shook her head and said “what have we come to?” Indeed, that this garbage is being shown during sports shows and daytime programming shows total disregard for families.
6. I must be in the minority with regard to what sells products. I would never buy a product hawked by children. What does a baby in diapers know about investing? I also won’t buy insurance from the company that has some guy named “Mayhem”. I hate these as well. I also hate the ones aimed at testosterone deficient males. The Miller Lite commercials with the big chested bartenders questioning customers manhood because they order another light beer when all light beers are girlie beers; the Go Daddy commercials; the Hardee’s commercials. My mute button gets a workout.
7. Speaking of commercials, the one I like has the dog fretting about his bone to the song “Trouble”. Then some animals don’t work for he like the GEICO lizard.
8. I remember when the first three-D movies came out and felt like a dork wearing those glasses. Now in a never ending effort to sell product, 3-D is back in the movies and now in your home with 3-D TV. No thanks.
9. Texas A & M was on TV in some bowl game and their basketball team is on often because they in the top 15. What stands out is how few girlie hairdos and tattoos are on the teams. Maybe it is the tradition of the corps. It is refreshing to see.
10. Every week that Bush was in office we got a count on the networks on the death total in Iraq. I guess in the past two years we have suffered no deaths in Iraq since Obama has been president.
11. Obama has also gotten a pass on his cabinet and White House staff. Where are the black faces? There is no black in a significant visible cabinet position. The White House spokesmen are white males. The chief of staffs have been white males from Chicago. Unlike Bush who had appointed more blacks to more significant positions than any other president, the first black president (sorry Bill Clinton) has done the opposite. If this were a republican administration, do you think the press would be this silent?

Compact fluorescent light bulbs are being pushed and mandated due to claims of energy savings and reduction in greenhouse emissions associated with domestic energy production. However, a well known side effect is that the bulbs contain small amounts of mercury which have health effects if the bulbs are broken. So the EPA has released guidelines for disposal which include
a. Get all people and pets out of the room
b. Air out the room
c. Shut off the AC
d. Collect the debris using duct tape and put it in a sealed mason jar.
e. If in the carpet, cut out the carpet and place all in a sealable container.

Also note that you are not to put the debris or even a bulb that burns out into the trash. It is not to be incinerated. Put it outside in a protected area and take it to your local cleanup site that accepts such materials. Yeah, sure. Want to bet? Most Americans are going to throw it in the trash meaning future land fill hazards. Talk about hazmat!

So the greenie weenies are willing to trade off health for greenhouse gases. All this simply adds to the insanity of the green movement. Isn't this the same bunch that wants to ban all sorts of stuff from consumer products. Didn't they whine about lead in paint or lead in Chinese toys? Didn't they try to ban small motorcycles and bikes because of lead? Aren't mercury thermometers being banned around the globe. Yet this bunch says its ok to use hazmats in light bulbs? Al Gore must own stock in the stuff. I will never buy a CFL bulb. My electric co-op in Georgia was giving the bulbs away. When the light bulb in my stairwell burned out I replaced it with the CFL bulb. The light was – to be kind – weird. At first the dogs would not go up the stairs. Second, despite all the hoopla about how the bulbs last long, mine burned out within a month. I took it out. The dogs quit being nervous. We all breathed easier. I went out and bought enough old style bulbs to last the rest of my life. What did I do with the burned out CFL bulb? I threw it in the trash.

Saturday, January 8, 2011

Really? The NCAA imposed the opposite of affirmative action on its schools and what happened? Did we get less diverse athletic teams? When the NCAA imposed minimum ACT/SAT scores for eligibility for Division I scholarships, black leaders protested. John Thompson, then coach at Georgetown, threatened a boycott. The contention was that the NCAA actions were anti-black and that kids who traditionally found big-time athletics a road out of the ghetto would not be admitted to colleges. We were also told that big-time basketball and football would suffer, being forced to rely on white boys who could not run fast, jump high, and do whatever it was that black boys excelled. Well we are ten years into those standards and along the way the NCAA also imposed minimum standards on the high school core that the athletes had to take and pass. Again, the black folks protested vehemently. Now not only did kids have to “pass” the ACT/SAT they also had to take prescribed courses in math, science and language. We were told that inner city schools did not offer these courses. Joining the black gnashers of teeth were the whites who said that that obviously the NCAA wanted college athletics to be the province of the white elite.

So what happened? Kids that wanted to play big time sports upgraded their curriculums actually studied, passed the courses, prepped for the ACT/SAT and “passed” them. College basketball is still basically the province of black urban kids. College football is still mostly black as well. If there is a diminution in quality it is because kids go early into the pros.

Excuse #2: Black students’ culture dumbs them down

A Berkeley professor once wrote that black high school kids fail to achieve because they are derided as “acting white.” If that is true then why aren’t the athletes prepping for the ACT so they can get a scholarship to college aren’t said to be “acting white”? Kids are using that as an excuse not to study. So be it, those kids are not destined in the first place to be our future leaders. All kids are subject to peer pressure: to do drugs, to do sex, to do alcohol, to do crime. Today’s culture glorifies all of this. This may be the first generation that takes as its role models, those from lower socio-economic status. It is the prison culture – tattoos, baggy pants that hang at the butt (prisoners are not allowed belts), foul language, fouler music, and general thuggery. The girls have the cheap streetwalker influence with the low jeans, short tops, assorted piercings and tattoos in the small of their backs. I call it the vulgar generation.

So what? Each generation is blessed with its losers. And we seem to be letting this generation’s get all the headlines. Let them fail. The ones that resist will achieve despite the pressures and that will make them great. There are plenty of those. They will overcome all the poverty pimps who want to blame whitey.

I was raised as a no excuses person. When I went to the University of Georgia as its first black male freshman, I knew that I could not come home with C’s whining that I could not study because my windows were being broken out every night. My father would have said “Then find a place to study. He believed that we are responsible for our own actions and I am his son. Black crime, illegitimacy, poverty (mainly single women head of households) are caused by us, fostered by us, excused by us, and must be addressed and fixed by us. There is considerable evidence that the War on Poverty made us worse off. Economics says that if you provide disincentives, then people will take advantage of it. The War on Poverty virtually destroyed the black nuclear family and gave rise to the poverty industry that is motivated to keep the poor poor. I am embarrassed by today’s black leaders. I only hear complaints. I only hear “throw more money at it (and at me).” I have never heard one of them offer up a tangible concrete solution to address the problems. I lost all respect for Jesse Jackson who while lambasting school vouchers (because he is in bed with the teachers unions) sent his children to St. Catherines and St. Albans in DC – private schools with ivy-league tuitions. Why didn’t he send his kids to the DC public schools? Yet instead of excoriating him, the liberals gave him a pass. I lost all respect for the NAACP when they named Kweisi Mfume as president. Its ok for him to be an elected official with his multitude of bastard children, but to represent the oldest black civil rights institution is an embarrassment. At least these so-called leaders are representing an ever decreasing and more isolated number of people. Blacks are becoming marginalized and soon will be just like Native Americans on their subsidized reservations.

I am still waiting for the first idea to come from the left as to how to improve the education of black kids. Rather they do nothing but make excuses. Isn’t it interesting that the ideas come from conservatives who are then skewered by the liberals – who only react and do not initiate.

OK back to the NCAA. What would happen if affirmative action disappeared tomorrow at the nation’s colleges? Would we be worse off? Or would the achievers be motivated to achieve? I have had black students that I have chastised for their lack of performance say “it doesn’t matter – I’ll still get into (medical school, law school, fill in the blank) because I am black.” Would they say this if there were no affirmative action? That’s an empirical question.

Excuse #3: Affirmative action results in black students having an inferiority complex

This is nonsense. Affirmative action may get the students admitted but it is not how they stay there. What should be done at the undergraduate level? Admissions is at best an inexact art. What criteria should be used for admission? Obvious a private college is a different case than a state one. A state university has an obligation to the residents of the state. How do you define that obligation? Should it reject white citizens in favor of black ones? If you say yes, then to what extent? Should it have a student population that mirrors the state’s racial composition? Or should it mirror the racial composition of students who graduate from its high schools? I have actually heard this point argued seriously. Admissions based on ability is somehow racist. Thus, they argue for affirmative action. I then say ”should the university recruit athletes from out of state – regardless of color – to the exclusion of athletes within state? Should the athletic programs reflect the racial composition of the state as well?” If you advocate that one, then the race pimps would scream discrimination because in the case of athletics having teams that are based on ability and disproportionately black is somehow acceptable.

My solution would be open admissions to all state high school graduates. The university would not have to lower its standards. The freshman year would be one of weeding out. All students would take language, history, math and science. Those that can’t deal with the tough curriculum, or the large classes, or the impersonal treatment will leave. They may end up at JUCOs or lesser universities or they may not. But that’s life. We should have no obligation to assure their success. That is their responsibility.

As it stands now affirmative action is the continuing manifestation of the marginalization of black (native born) Americans. It’s not just our becoming the second largest minority. But it’s the reaction of our so-called leaders who fear the loss of power and the loss of government handouts. I am embarrassed that our leaders want our people to continue to be wards of the state. Our undergraduates add to the marginalization with their black dorms, black graduations with their kinte cloths, black proms, et al. Don’t misunderstand: cultural awareness is good. All cultures should be included in mainstream learning but not separated from it. I remember asking my Mom why we had a black history week (in those days) and she said “its because every week is white history week”. However, my beef with history has always been that it is wrong. I had problems with its content in high school and especially in college where I challenged by economic history prof and got a “C” for my insubordination. The history I have read is written by socialists, leftists, are apologists for the failures of the left and hate capitalism and its successes. Yet the irony is that the economic status of black Americans would place them solidly in the middle class in the rest of the developed world. You measure the success of an economic system by the well being of its poorest members.

We are somehow under the incorrect impression that diversity makes this country great. That is garbage. This country is great because of freedom and capitalism. Did you ever wonder why white men willingly gave up power (to blacks and to women)? Its because the Constitution made them do it. Freedom. Why have blacks achieved in this country? Capitalism. Someone said that socialism has been discredited everywhere in the world except on university campuses. However, this is a truly rare country where we, the descendants of slaves, can teach the descendants of the masters.

Consider this: why are we not Bosnia or Northern Ireland or Lebanon or Dafur? Why is it that people who openly kill each other elsewhere in the world are in this country coexisting peacefully? I remember when the (white southern male) courts forced the (white southern male dominated) University of Georgia to admit its first blacks, there was a riot and the University expelled the blacks for “their own safety.” The courts immediately ordered their reinstatement. The governor (white southern male) called out the national guard (white southern males) and there were stories that some of the rednecks who were rioting the day before put on their uniforms and enforced the peace the following day: “Don’t come across that line baby brother or I’ll be forced to hit you upside your head with this billy stick.” Only in America. Again. It’s the Constitution and the respect for the law – even by rednecks. I actually felt sorry for Jim Meredith who was admitted to Ole Miss the same quarter I was admitted to Georgia. He had to have two state troopers assigned to be with him at all times on campus. I have always wondered if they graduated too.

However, ultimately all this stuff doesn’t really matter. Achievers will still achieve. The great unwashed will remain unwashed. Pimps will still pimp. The minority of the minority will still be put forth as the norm, despite all the statistics to the contrary. Nonetheless, we should never let the poverty/race industry dominate the conversation. We know the truth and to continue to let the exception get promulgated as the rule does us all a disservice.

Thursday, January 6, 2011

Here is my list (incomplete) compiled from previous blogs on how to restore the American dream.

1. Institute a flat tax of 20 percent. Tax all income - no exceptions. Everyone pays - no exceptions and no deductions. The poor will get subsidies from other programs but paying taxes is the price of citizenship. All pay then all will realize the cost of government.
2. Abolish the capital gains tax.
3. Abolish the corporate income tax.
4. Limit government spending to 20 percent of the previous year's GDP. The president can ask for a one year exemption in the case of a national emergency which must be approved by a super majority vote in both houses of congress.
5. Abolish discretionary federal reserve monetary policy which leads to irresponsible tinkering by the Fed. Impose Friedman's monetary rule of allowing the money supply to grow at the long run GDP growth each year - removing uncertainty.
6. Defined benefit plans bankrupted companies which is why retirement plans are now defined contribution plans (401k). Abolish public sector defined benefit plans which are bankrupting municipalities and states and replace them with defined contribution plans.
7. Repeal health care "reform". I have given market solutions that will work including those designed for pre-existing conditions.
8. Include the cost of all government regulations in the 20 percent of GDP rule.
9. Abolish the departments of education, energy, and agriculture (for starts) and allocate their funding (where appropriate) to the states via block grants.
10. Set federal worker pay scales (including benefits) to private sector pay. Federal pay is much greater because it is not subject to market forces and discipline.
11. Put all tariffs, quotas and subsidies on a periodic review cycle with sunset provisions. If they are to be continued then the congress would need to debate them, pass them and the president sign them every couple of years or so.
12. Encourage and reward risk taking. Ensure that all programs provide positive incentives to be productive rather than negative ones that discourage work.

Monday, January 3, 2011

Happy New Year. The new year's best news is that the 111th Congress is gone with its rapacious appetite for spending and job destruction.

Members of the Democrat-led Congress increased minimum wages - which always destroys jobs - enacted health care "reform" and tried to pass cap and trade along with myriad other legislation. Its last gasp was to try to pass an omnibus $1 trillion spending bill laden with the type of pork that has helped create the largest debt burden in history.

On its way out, Congress also extended the Bush tax cuts while also extending unemployment benefits. During debate on the two year tax-cut extension, we were treated to the administration arguing the absurdity that unemployment benefits actually stimulated the economy. Few people actually believed this nonsense and rightly so.

It only reinforced the belief that we are governed by fools. We are better off that many of this bunch of incompetents were voted out of office. We also had politicians from both parties arguing that the tax-cut extension was stimulative - also an absurdity. How the preservation of the status quo stimulates the economy was never explained.

It can't be.

Since job creation has been hampered by uncertainty, the extension of the tax cuts for only two years will do nothing to create jobs. Rather, the tax cuts should have been made permanent and health care "reform" should have been repealed. That would have been stimulative. What was clear is a reiteration that the purpose of taxes is not primarily to raise revenue but rather to reward and to punish (one of Harold Black's laws).

It is ironic that regardless of how politicians manipulate the tax code in general, the same percentage of revenues flows to the government. This is Hauser's law. The government gets around 19 percent of gross domestic product regardless of the tax code. The difference is that when marginal rates are increased (in order to punish the "rich"), GDP falls and the government gets 19 percent of a smaller GDP.

When marginal rates are decreased, the government still gets 19 percent but of a larger pie, which actually results in a greater total amount of tax revenues collected. So raising taxes on the "rich" is counterproductive and cutting taxes is stimulative.

Most of the "rich" that I know did not inherit their wealth and got wealthy by being creative and hardworking. I thought this was the American dream. Yet they are subjected to scorn when they should be lauded. Do these politicians want all of us to be poor instead? I, for one, have never understood why instead of encouraging the group that is highly productive, innovative and the creator of jobs, so many politicians do the opposite.

I know it's too much to ask for, but my wish for the new year is for a Congress that creates an environment that encourages and rewards risk-taking, creativity, unleashes market forces that will lead to sustained economic growth. In so doing, it will create more rich taxpayers, grow the economy and make us all better off.

Dr. Harold Black is the James F. Smith Jr. Professor of Finance at the University of Tennessee. He can be reached at hblack@utk.edu.

About Me

Harold A. Black is professor emeritus in the Department of Finance, University of Tennessee, Knoxville having retired after 24 years of service. He has served on the faculties of American University, Howard University, the University of North Carolina - Chapel Hill and the University of Florida. His government service includes the Office of the Comptroller of the Currency and as a Board Member of the National Credit Union Administration. He also has served on the boards of directors Home Savings of America and its parent company, H. F. Ahmanson & Co., Irwindale, California prior to its merger with Washington Mutual Savings Bank, on the board of New Century Financial Corporation, Irvine, California, then the nation’s largest real estate investment trust and as director and later chairman of the Nashville Branch of the Federal Reserve Bank of Atlanta. He writes an occasional article for the Knoxville News-Sentinel at http://www.knoxnews.com/staff/dr-harold-black/. His web page is haroldablackphd.com